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Category Archives: Economics

The commentariat are in an uproar over President Trump’s alleged use of the term “shit-hole” to describe Haiti and parts of Africa. They say it’s a racist slur.

If the president did indeed use that word in a public setting, it’s noteworthy for its vulgarity, but is it really a racial slur? Is it even wrong?

Let’s consider Haiti. It is the poorest nation in the Western Hemisphere. Right next door to Haiti – on the very same island – the Dominican Republic has the largest economy in Central America and the Caribbean, and it enjoys a much better standard of living. Why?

When the January, 2010 7.2 magnitude earthquake hit Port-au-Prince, nearly a quarter of a million people died because something like 60-70% of all the buildings were severely damaged or collapsed outright, including the presidential palace. Compare that to the exponentially more powerful earthquake that hit Chile that same month, where less than a thousand people died. What accounts for the different results? Form of government, property rights, building codes, and insurance. Chilean citizens have a semi-capitalistic country, a decent economy, property rights, and insurance, so they built their buildings to be earthquake resilient – and survived the more powerful quake in much better shape.

What is now Haiti, on the island of Hispaniola, was the first place Christopher Columbus landed during his first voyage in 1492. Within the first decade, the Spanish began bringing in African slaves, and within 25 years, much of the natives were either enslaved by the Spaniards or killed by diseases brought by them…and the Spaniards were themselves being killed by tropical fevers. Before long, the Spanish were more concerned with conquering the mainlands of North and South America, and began to lose interest in Hispaniola. Haiti became a haven for pirates in the interim, but by the late 1700s, France was a power, and Spain ceded the western third of Hispaniola to the French. (To this day, Spanish is spoken in the Dominican Republic, while French-influenced Haitian Creole is spoken in Haiti.) Napoleon sent French troops to enforce French rule, but many of them succumbed to tropical fevers, and in 1804, after a successful revolt against the weakened French forces, the slaves declared themselves free and named their nation Haiti. It was one of the few bright spots in the history of this place.

While Haiti began as the first nation founded by slaves who had “freed” themselves via revolt…they never truly freed themselves. The leader of the revolt, Jean-Jacques Dessalines, declared himself Emperor Jacques I in 1804. The first “free” Haitians simply traded their physical chains and European masters for a succession of Haitian masters and the chains of varying degrees of dictatorship. Except for a brief period around the last two decades of the 19th Century, Haiti has never been a prosperous country, partly because Haitians themselves have never maintained the kind of rights-respecting government that allows prosperity, and partly due to massive foreign debt.

Indeed, at the behest of US banks to whom Haiti was deeply in debt, the US military occupied Haiti from 1915 to 1934. The US occupation had mixed results. There were some republican reforms to the government and much improved infrastructure, which was often accomplished by impressing locals into labor gangs in lieu of charging taxes, which of course generated resentment and resistance from the local population. Between the end of the US occupation in 1934 and now, the history of Haiti amounts to a succession of “presidents” with dictatorial powers enriching themselves and their cronies on the backs of the Haitian people and at the expense of Haiti’s natural resources, peppered with coups and revolts and foreign interventions.

The history of Haiti is one of slavery, disease, dictatorships, piracy, environmental destruction, foreign intervention, abject poverty, neglect, exploitation, corruption, and natural disaster. Shit-hole may be a rude word to describe it, but is it inaccurate? And how is it racist?

So, the FCC decided to end Net Neutrality, and now there is an uproar. The main objection seems to be that now internet service providers (ISPs) like Cox, Comcast, and Verizon will be able to charge whatever they want for their services, block whatever sites they like, and throttle unprofitable traffic in favor of profitable traffic. Net Neutrality prevented ISPs from doing this…at the cost of allowing the government to decide what private businesses did with their own property – namely the cables, switches, servers, and fiber optic lines they send their signals over. When people are allowed to own private property, but it can only be used in a manner specified by government, you have fascism.

Ending Net Neutrality is taking a step back from fascism, but it does not alleviate the concerns of individual/residential ISP customers. Now we are back to the big private ISPs being able to run roughshod over us and treat us like our business doesn’t matter, right? How can our business not matter to them? (Actually, it does matter, just not so much at the individual level, but as a mass.) Even so, that’s not the real problem.

The real problem with internet service is that the ISPs, through agreements with various governments and established back in the pre-broadband days when they were just cable TV providers, usually have local monopolies. That means if you want broadband internet service via cable, you usually only have one ISP option in your area. That means you generally can’t take your business elsewhere if you are dissatisfied – which means you have little or no leverage over the ISP, unless you are willing, and financially prepared, to take them to court.

In short, Net Neutrality was a hackneyed, fascist government intrusion necessitated as a “solution” to a more basic hackneyed, “crony-capitalist” (i.e. corporatist) government problem.

Here’s an analogy. Let’s say you buy your groceries at Safeway. They disappoint you in some fashion, so you decide to shop at Super Walmart instead, then you switch to Fry’s (or whatever). If grocery stores were like ISPs, there would not be any other stores in your area. Safeway (for example) would be in cahoots with your local government, and you would only have one choice. Now, suppose more and more people complain to the government about how terrible the service is at the local Safeway store. The store charges different prices based on whether a given customer buys in bulk or not. In other cases, the Safeway refused to carry some customers’ favorite items, because they are obscure or hard to obtain and don’t sell at a profit. The local government decides it has to do something about the problem. They enact “Grocery Neutrality.” They tell Safeway that they can’t discount prices to customers who buy in bulk (or they must sell to everyone at the bulk discount price, regardless of how much they actually buy). They also tell the Safeway that they must order anything a customer wants, unless it’s illegal, regardless if it will generate profit or not. Would it not be simpler and more in keeping with the spirit of a free country for the local government, instead of dictating to Safeway what it can and cannot do with its own property, to simply end Safeway’s monopoly and let in any grocery company?

The same is true of ISPs. The solution to the problem of ISPs treating smaller customers poorly (because the ISPs have a government-sponsored monopoly over the local market) isn’t more government interference in the form of Net Neutrality, it’s monopoly dissolution!

You’ve probably heard of the concept that computer speed doubles roughly every 12-18 months. This concept is called Moore’s Law, named after Gordon Moore, one of the co-founders of the computer chip company Intel. He made his observation in 1965, and it has largely been accurate. Moore’s law is part of a larger phenomenon, something called the accelerating rate of change.

Think of it this way: A farmer from the 1500s transported 200 years into the future would not have been amazed by the technological advancements to farming in the 1700s. For the vast majority of people, technology simply didn’t change during their lifetimes. Fast forward to the late 1800s: My maternal great grandmother crossed the plains in a covered wagon in the 1890s and settled in what is now the little town of Kiowa, Colorado. Steam technology existed then; she had probably heard of, or may have even ridden on a steam locomotive. She might have sent and received telegrams. But most of the new technology of the day was concentrated in the coastal cities. Pioneers and settlers were still using wagons and draft animals. A Roman Centurion from 1800 years in the past might have been amazed by a steam locomotive or a telegraph, but he would have found her Conestoga wagon unremarkable. This same great-grandmother lived to watch men walk on the moon.

In her lifetime, gasoline and diesel-powered cars and trucks replaced the horse as the primary means of personal travel. The automobile industry disrupted the horse culture; now horseback riding is primarily a hobby for people who can afford to keep horses. Telephone, radio, and television grew to become the primary means of sending and/or receiving information. These technologies disrupted (but didn’t eliminate) mail service. She was born at the tail end of the Industrial Revolution and lived through the Gilded Age, the Jet Age, and the Space Age.

She died in the early 1970s. Since then, the rate of change has only accelerated. The computer network that would become the internet was just getting started in the 1960s when Moore made his observation; now it is the predominate feature of modern life. Television and radio gave rise to the “mainstream media,” i.e. the big three networks: ABC, CBS, and NBC. Satellite and computer technology allowed cable upstart CNN to join the club in 1980, followed soon after by other cable networks. CNN disrupted the status quo and initiated the 24-hour news cycle. The “big three” had to play catch-up. Advances in internet speed and the invention of “hypertext mark-up language” (HTML), gave us the World Wide Web. Within a decade of CNN disrupting the existing main-stream media, “the Web” enabled even more disruption. News aggregators. Blogs. Online magazines. Email and RSS feeds. And now: Streaming media. Smart phones. Wi-fi. Digital currency. AI. Fusion. Nano-tech. DNA editing. Laser weapons. Robots. Self-driving cars. With the accelerating rate of change has come the accelerating rate of disruption. In our lifetimes, we will experience more technological advancement than has been accomplished in the previous 20 millennia – if we can successfully ride the waves of disruption!

The current FCC Chairman, Ajit Pai (A Trump appointee) has proposed to roll back Net Neutrality rules. Net Neutrality is a legal doctrine that says that Internet Service Providers, or ISPs, such as Cox, Comcast, or AT&T, must treat all data equally, i.e. neutrally. In other words, it bans ISPs from blocking, slowing down, or accelerating some internet traffic over other traffic. Some examples:

Net Neutrality bans a provider, such as Comcast, from blocking or “throttling” (i.e. slowing) traffic that originated from a competitor.

Net Neutrality bans a provider from blocking access to political sites it might disagree with.

Advocates of Net Neutrality believe that such laws are necessary to ensure “freedom of access” to information, i.e. that we consumers should all have exactly the same amount of access to “get on the web,” and we should all have exactly the same access to bandwidth while we are there. As a consumer, that sounds pretty good, right? (76% of Americans believe it does.) So, what’s wrong with that?

The advocates are evading context. Regardless of how important, useful, and even critical the internet has become, it just isn’t theirs, nor is it the government’s, to control. As it turns out, what we think of as the “Internet” has both “public domain” and private components. The computer languages and protocols used to create and link websites and to transfer data “packets” are in the public domain, i.e. their creators gave them to the world. On the other hand, all of the computers, servers, cables, fiber optic lines, modems, routers, etc. that data is hosted on and travels over belong to their owners – the ISPs, web hosting companies, content providers, etc. and consumers – us. In other words, the physical components of the Internet are primarily composed of private property.

Imagine that in 1789, when the Constitution was ratified, the government instituted Publishing Neutrality right along with the First Amendment. Publishing Neutrality says that publishing firms can’t prioritize publishing large corporate orders (such as text books for a school system) over small orders (such as an obscure book on pet lizard grooming), and they have to charge the same amount per page for each book they print (regardless of the economy of scale or the material used). Such a law would have destroyed the publishing industry, and would have done nothing to further the right of free speech.

Advocates fear that without Net Neutrality, ISPs will act unfairly and consumers will pay the price. I’m not in a hurry to have worse service or higher prices myself, but the alternative, Net Neutrality, is the government, primarily in the form of the FCC, telling ISPs what they can and cannot do with their own private property. That is a hallmark of fascism. For that reason alone, we should seek to end it.

As Thomas Sowell has pointed out, politicians only “care” about your issues after they have taken care of their own goal: to get (or stay) elected.

The mainstream media cares about 1. Getting ratings, and 2. Trying to tell you what your issues are, so that they can make a crisis out of them in order to 3. Get ratings.

Back to politicians. Guess how politicians figure out what to campaign on? Polls, certainly, but also by watching the news to figure out what the big issues are. Who else uses polls? That’s right, the media.

Hmmm. The politicians who care about getting votes leverage mass media. Mass media cares about getting ratings, so they leverage and influence political discourse in order to “sex thigs up.” What we have here is a “self-licking ice cream cone.” The missing ingredient? Your interests. Who cares? Not your elected officials, and not the news media.

As a college professor once mentioned to me, any organization that reaches a certain critical mass will begin to behave like an organism. The first goal of an organism is to survive; the second is to reproduce. Thus, governments at almost any level don’t care about you, they care about expanding. If they can do that by seeming to care about you, that is what they will do. If they grow by steamrolling you, then they will do that. Often, government manages to both at the same time. Who cares? Not the government.

big corporations behave like organisms, too. They are different from governments in that they must make a profit to prosper and grow, and they cannot do that by killing or alienating their customers – so they take care not to purposely end you – but they are not so caring as to be above hooking you on their products (cigarettes, alcohol, medicine, sugary and fatty processed foods, etc.), and they have big PR machines to show how they (pretend) to care about virtuous causes. Who cares? Not big corporations.

College and universities care about bringing in the revenue, and they’ve found the easy button. Every year they raise prices, and every year the uncaring government (led by the uncaring politicians who are watching the uncaring media) obliges them by increasing the amount of money it gives, or loans, to students (or their parents), who then fork it over. Meanwhile, outside of the STEM fields (Science, Technology, Engineering, and Math), the knowledge, skills, and abilities of graduates continues to decline in value to the employers who might hire them. Who cares? Not Academia.

We can keep going, but the answer to the question should be becoming apparent. The universe doesn’t care about you. The world doesn’t care about you. Government and politicians and corporations and the media and academia don’t care about you. Only individuals care about you, or can care about you.

Why should you care?

Because much of the political ideologies popular today (socialism, communism, fascism, etc.) are geared towards promoting some form of collectivism – subsuming your individuality into a massive, unthinking, uncaring organism where every transaction, or even thought, is either compelled or forbidden. These are the ideologies of people who would kill the goose that lays golden eggs.

How much better to live in a society where the only forbidden transaction is the involuntary one? Where the competitive-cooperative nature of individuals can flourish, and where the more aggressive aspects of some can be channeled into more productive directions? That is the essence of capitalism – it is the ideology of traders, i.e. it is the philosophy of people who care – about themselves certainly, but also about breeding the geese that lay golden eggs!

In military slang, the word gouge can mean information or intelligence. For example: One person tells another a trick or hack for getting a task done quicker. The second person might say “thanks for the gouge.”

On the other hand, people are very much not thankful for what they perceive to be the price gouging happening in Houston and the rest of the Hurricane Harvey impact zone. Loosely defined, price gouging is when a vendor radically raises their prices, as often occurs in and near disaster zones. Potential customers believe such vendors to be vultures, capitalizing on the misery of others.

But is that what is really going on?

In a recent Facebook post, A group called “Educate the People” shared pictures of a convenience store billboard showing gas prices over $8.00 per gallon, and a case of bottled water going for nearly $45.00. The caption beloe the pictures read “Heartless Capitalist Texas Store Owners.”

“Educate the Public” indeed! It’s not heartless. If millions of people are trying to “get out of Dodge,”(or stockpile at the last minute) because a disaster is imminent or in-progress, then supply trucks aren’t going into Dodge. When that happens, the things we normally take for granted are suddenly in much more demand, soon to be much scarcer, and thus suddenly much more valuable. When the demand for something skyrockets, but the supply is shrinking, the price must skyrocket as well. It sucks if you want to buy the thing that has quadrupled in price (so you have some to spare), but if you genuinely need it for survival, there just might still be some available because the people who merely wanted it weren’t willing to fork over the cash. It may seem like the store owner is profiteering, but consider: The store is still open and doing business when everyone else is trying to flee or hole-up!

If the store owner left his prices at the normal level (or was forced by the government to do so), he’d be out of stock in hours – or even minutes, with no routine resupply on the calendar. What is he, or his customers most in need, to do then?

The purveyors of “Educate the Public” should consider taking some remedial economics lessons instead of pandering to a generation of Americans who are being taught that they are entitled to something just because they think they need it.

To save them some time, here are the applicable points:

Price, cost, and value are not the same thing; however, in a functional system of mutual trade to mutual benefit, they are closely related. If the thing is becoming scarcer because the gap between supply and demand is increasing, the price will go up as a message to the consumer that the scarcity of the thing has increased.

When some force, usually in the form of government, compels a vendor to ration items, or to limit prices, the system is no longer about mutual exchange to mutual benefit. It has become dysfunctional, shredding the relationship between price, cost, and value. The price of an item no longer communicates the scarcity to the consumer. This increases the risk that hoarders and black-marketeers will buy up all the stock in a short amount of time, leaving the shelves bare, and leaving people in crisis with far fewer options. This will in turn lead to more desperation and lawlessness, not less.

In short: price gouging is not evil, though radically increased prices may shock and offend our sensibilities during a crisis, lulled as we are by generations of living in the stability of the largest economy in the world. On the other hand, anti-price gouging and rationing laws just might be evil, because they create more harm than they cure – by causing or exacerbating shortages in the guise of mollifying the unthinking and easily offended.

Today we celebrate our nations’ birthday, codified by the Declaration of Independence. It is one of the watershed documents of human history – not for its eloquence (though it is wonderfully written), but for what it accomplishes. In modern parlance, it is the “vision statement” of a new country (the preamble of the Constitution is the “mission statement,” while the body and the Bill of Rights are the “operating manual”) – one founded on the concept that the purpose of government is to protect the individual rights of the citizens – and not much else.

The kind of freedom espoused in the Declaration does not come freely. An individual free from government oppression must by definition also be “free” from dependence on government – he or she must be self-reliant. He or she must produce what they need to survive, either directly, through the hard physical work of living off the land, or indirectly, by doing the hard physical or mental work of producing something worthy of exchanging for the food, water, shelter, clothes, and other goods and services one needs to survive. Under this vision of freedom, survival is the basic underlying motivation for producing: either you make your own shelter and grow/kill your own food, or you make something to sell to others, or work for someone else in exchange for money so you can buy those things, or you don’t eat and don’t have a roof over your head!

Basic survival is the foundational motivation, but it is not the only one. Since any surplus produced belongs to the producer who created it, it can be saved for a rainy day, or exchanged for something else – a luxury, perhaps, or something that will make the future effort of producing “a living” go a little easier, i.e. an investment. In this manner, the “rugged individualists” are producers of wealth. They have no expectation that anything will be given to them, and they demand that nothing be taken from them – but they trade value for value amongst each other. All economic exchanges are conducted voluntarily to mutual benefit. This is how wealth can be created. It is the essence of Capitalism.

Critics either cannot or will not see this creation of wealth, this “enlargement of the pie.” To those folks, the “pie” is finite. There is only so much wealth, and if someone has more if than another, they must have stolen the excess, or received it unfairly. The “pie” (wealth) is distributed, not produced! They also argue that no one, not even the “rugged individualist,” can go it alone, that each of us must depend on the benevolence of others, or of the state (i.e. the same thing) – under the threat of force, if necessary. They use that formulation to argue for and justify all manner of violations of our rights by the government (that is supposed to defend those rights), and then point to the artifacts of those intrusions (roads and railways and schools are favorite examples) as proof of their assertions – as if those things have not been and could not be made by private parties. This is the essence of all forms of Collectivism.

To make it work, they have to cram the word freedom through the Orwellian doublespeak machine. What comes out the other end is all but unrecognizable. To this crowd, freedom means the absence of want or need or responsibility for one’s choices. Since they “can’t” handle the requirements of individualism, they must first hook as many people as possible onto the drug of state dependency, and then they must vilify and penalize those who insist on being individualists. Therefore, you must want government regulation and government assistance for everything, right? It’s what’s best for you. Surely, then, you‘ll understand and appreciate the tax man taking 40-50% or more of everything you produce, right? And when that doesn’t cover the costs of all the “benefits” and “entitlements” the government is “bestowing” upon your neighbor, you’ll understand when the bureaucrats will take even more of your wealth by manipulating the value of the currency, right? (Oh, wait, they forgot to teach that part at the government –run schools they “bestowed” upon you.) Thus, the 1800 square foot house your parent’s bought in the Denver area in the 1960’s for $18,000 goes for $350,000 to $400,000 today. The value of the house might have gone up – it might have even doubled or tripled, based on the popularity of the city and the neighborhood, but it didn’t go up 22 times. Rather the dollar has been devalued that much or more over 50 years – and salaries haven’t kept up. An $18,000 house was an affordable investment for an engineer with ~3 years’ experience, making a $7K or $8K annual salary in the sixties. How does the salary of an engineer with ~3 years’ experience compare now, relative to the house that has “gone up in value” 22 times? The median pay for an electrical engineer in Denver, CO is $76K per year now. The value of the house “went up” 22 times, but the pay of an engineer only “went up” 10 times during the intervening 50 years. The lag between rising prices and rising salaries is the stolen wealth zone.

The Collectivists don’t want you to look behind the curtain. They don’t want you to realize that their formula requires you to be a producer so that more and more people who won’t produce can ride on your back – until it gives out and you beg for assistance yourself – but at that point there won’t be anyone left to provide assistance, and we will have become Venezuela…or worse.

When you celebrate our independence today, will you be celebrating independence from tyranny, or independence from reality?